Canadian dollar erases gain after report shows economy shrank

Canada’s dollar erased a gain after a report showed the nation’s gross domestic product unexpectedly shrank for the first time in six months in August.

The currency traded below parity with the U.S. dollar for a third day after Statistics Canada said output fell 0.1 percent to an annualized C$1.29 trillion ($1.29 trillion) from July, compared with a 0.2 percent increase forecast in a Bloomberg survey of 23 economists. Output grew 1.2 percent in August from a year earlier, the slowest pace since January 2010.

“The GDP numbers are the main release in North America today, the biggest catalyst for the Canadian dollar, and they were definitely a disappointment,” Greg Moore, currency strategist at Toronto-Dominion Bank, said in a phone interview. “The trend for the Canadian dollar remains lower.”

Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, depreciated 0.1 percent to C$1.0007 per U.S. dollar at 9:16 a.m. in Toronto. It touched C$1.0019 yesterday, the weakest since Aug. 6, before closing at 99.94 cents. One Canadian dollar buys 99.93 U.S. cents.

The loonie is down 1.7 percent this month against the greenback, paring a 2 percent gain for the year.

The world’s 11th largest economy is being restrained by an inconsistent global recovery with risks posed by Europe’s debt crisis and the prospect of automatic tax increases and spending cuts in the U.S. next year. Finance Minister Jim Flaherty cut growth and revenue forecasts Oct. 29, citing lower commodity prices, while Bank of Canada Governor Mark Carney said last week the need to raise interest rates is “less imminent.”

“The report does move the tracking for the third quarter to what the bank had forecast, so it doesn’t necessarily go against what Governor Carney has said,” TD’s Moore said. “The general message will likely remain that the move for interest rates is up and won’t go down.”